HEDGE FUNDS
LAWS FOR ADVISERS & FUNDS: FEDERAL LAW
SEC
Information for Funds & Advisers
"This (SEC) page provides a shortcut to much of the information on
the SEC's website for investment companies - such as mutual funds, closed-end
funds, UITs, ETFs, and interval funds - and federally registered investment
advisers." There is much more on the SEC site about hedge funds.
At www.sec.gov, simply Search "Hedge
funds" and next search "Investment Advisers."
Here are the federal laws of importantance with some of our comments:
Final
Rule: Registration Under the Advisers Act of Certain Hedge Fund Advisers
...
AGENCY: Securities and Exchange Commission (the Commission or SEC ). ACTION:
Final rule. SUMMARY: The Commission is adopting a new rule and rule amendments
under the Investment Advisers Act of 1940. Size: 503511 Modified: 12/09/2004
/rules/final/ia-2333.htm.
Securities Act of 1933
Often referred to as the "truth in securities" law, the Securities
Act of 1933 has two basic objectives:
• require that investors receive financial and other significant
information concerning securities being offered for public sale; and
• prohibit deceit, misrepresentations, and other fraud in the sale
of securities.
The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.
Purpose of Registration
A primary means of accomplishing these goals is the disclosure of important
financial information through the registration of securities. This information
enables investors, not the government, to make informed judgments about
whether to purchase a company's securities. While the SEC requires that
the information provided be accurate, it does not guarantee it. Investors
who purchase securities and suffer losses have important recovery rights
if they can prove that there was incomplete or inaccurate disclosure of
important information.
The Registration Process
In general, securities sold in the U.S. must be registered. The registration
forms companies files provide essential facts while minimizing the burden
and expense of complying with the law. In general, registration forms
call for:
• a description of the company's properties and business;
• a description of the security to be offered for sale;
• information about the management of the company; and
• financial statements certified by independent accountants.
Registration statements and prospectuses become public shortly after filing
with the SEC. If filed by U.S. domestic companies, the statements are
available on the EDGAR database accessible at www.sec.gov. Registration
statements are subject to examination for compliance with disclosure requirements.
Not all offerings of securities must be registered with the SEC. Some
exemptions from the registration requirement include:
• private offerings to a limited number of persons or institutions;
• offerings of limited size;
• intrastate offerings; and
• securities of municipal, state, and federal governments.
By exempting many small offerings from the registration process, the SEC
seeks to foster capital formation by lowering the cost of offering securities
to the public.
Investment Company Act of 1940
This Act regulates the organization of companies, including mutual funds,
that engage primarily in investing, reinvesting, and trading in securities,
and whose own securities are offered to the investing public. The regulation
is designed to minimize conflicts of interest that arise in these complex
operations. The Act requires these companies to disclose their financial
condition and investment policies to investors when stock is initially
sold and, subsequently, on a regular basis. The focus of this Act is on
disclosure to the investing public of information about the fund and its
investment objectives, as well as on investment company structure and
operations. It is important to remember that the Act does not permit the
SEC to directly supervise the investment decisions or activities of these
companies or judge the merits of their investments. The full text of this
Act is available at: http://www.sec.gov/about/laws/ica40.pdf.
Investment Advisers Act of 1940
This law regulates investment advisers. With certain exceptions, this
Act requires that firms or sole practitioners compensated for advising
others about securities investments must register with the SEC and conform
to regulations designed to protect investors. Since the Act was amended
in 1996, generally only advisers who have at least $25 million of assets
under management or advise a registered investment company must register
with the SEC. The full text of this Act is available at: http://www.sec.gov/about/laws/iaa40.pdf.
Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002, which he characterized as "the most far reaching reforms
of American business practices since the time of Franklin Delano Roosevelt."
The Act mandated a number of reforms to enhance corporate responsibility,
enhance financial disclosures and combat corporate and accounting fraud,
and created the "Public Company Accounting Oversight Board,"
also known as the PCAOB, to oversee the activities of the auditing profession.
The full text of the Act is available at: http://www.sec.gov/about/laws/soa2002.pdf.
You can find links to all SEC rulemaking and reports issued under the
Sarbanes-Oxley Act at: http://www.sec.gov/spotlight/sarbanes-oxley.htm.
Securities Exchange Act of 1934
With this Act, Congress created the Securities and Exchange SEC. The Act
empowers the SEC with broad authority over all aspects of the securities
industry. This includes the power to register, regulate, and oversee brokerage
firms, transfer agents, and clearing agencies as well as the nation's
securities self regulatory organizations (SROs). The various stock exchanges,
such as the New York Stock Exchange, and American Stock Exchange are SROs.
The National Association of Securities Dealers, which operates the NASDAQ
system, is also an SRO.
The Act also identifies and prohibits certain types of conduct in the
markets and provides the SEC with disciplinary powers over regulated entities
and persons associated with them.
The Act also empowers the SEC to require periodic reporting of information
by companies with publicly traded securities.
Corporate Reporting
Companies with more than $10 million in assets whose securities are held
by more than 500 owners must file annual and other periodic reports. These
reports are available to the public through the SEC's EDGAR database.
Proxy Solicitations
The Securities Exchange Act also governs the disclosure in materials used
to solicit shareholders' votes in annual or special meetings held for
the election of directors and the approval of other corporate action.
This information, contained in proxy materials, must be filed with the
SEC in advance of any solicitation to ensure compliance with the disclosure
rules. Solicitations, whether by management or shareholder groups, must
disclose all important facts concerning the issues on which holders are
asked to vote.
Tender Offers
The Securities Exchange Act requires disclosure of important information
by anyone seeking to acquire more than 5 percent of a company's securities
by direct purchase or tender offer. Such an offer often is extended in
an effort to gain control of the company. As with the proxy rules, this
allows shareholders to make informed decisions on these critical corporate
events.
Insider Trading
The securities laws broadly prohibit fraudulent activities of any kind
in connection with the offer, purchase, or sale of securities. These provisions
are the basis for many types of disciplinary actions, including actions
against fraudulent insider trading. Insider trading is illegal when a
person trades a security while in possession of material nonpublic information
in violation of a duty to withhold the information or refrain from trading.
Registration of Exchanges, Associations, and Others
The Act requires a variety of market participants to register with the
SEC, including exchanges, brokers and dealers, transfer agents, and clearing
agencies. Registration for these organizations involves filing disclosure
documents that are updated on a regular basis.
The exchanges and the National Association of Securities Dealers (NASD)
are identified as self-regulatory organizations (SRO). SROs must create
rules that allow for disciplining members for improper conduct and for
establishing measures to ensure market integrity and investor protection.
SRO proposed rules are published for comment before final SEC review and
approval. The full text of this Act can be read at: http://www.sec.gov/about/laws/sea34.pdf.
Public Utility Holding Company Act of 1935
Interstate holding companies engaged, through subsidiaries, in the electric
utility business or in the retail distribution of natural or manufactured
gas is subject to regulation under this Act. These companies, unless specifically
exempted, are required to submit reports providing detailed information
concerning the organization, financial structure, and operations of the
holding company and its subsidiaries. Holding companies are subject to
SEC regulations on matters such as structure of their utility systems,
transactions among companies that are part of the holding company utility
system, acquisitions, business combinations, the issue and sale of securities,
and financing transactions. The full text of this Act is available at:
http://www.sec.gov/about/laws/puhca35.pdf.
Trust Indenture Act of 1939
This Act applies to debt securities such as bonds, debentures, and notes
that are offered for public sale. Even though such securities may be registered
under the Securities Act, they may not be offered for sale to the public
unless a formal agreement between the issuer of bonds and the bondholder,
known as the trust indenture, conforms to the standards of this Act. The
full text of this Act is available at: http://www.sec.gov/about/laws/tia39.pdf.
If you have any questions and/or would like to get started with us, please send an e-mail to hedgefunds@greencompany.com or call us today.
